Debt mutual funds to be taxed as per slab from 1st April 2023! (2024)

Published on March 24, 2023 / By M. Pattabiraman Twitter: @pattufreefincal

Published: March 24, 2023 at 11:05 am

Last Updated on March 24, 2023 at 3:31 pm

In a surprising move, the govt announced several amendments to the finance bill 2023. Among the changes is the change in taxation status for debt mutual funds.

Taxation status from 1st April 2023

Funds holding 65% or more of Indian equity or Indian equity ETFs are equity funds (no change in this)
Funds holdings less than 65% Indian equity but more than 35% Indian equity are non-equity funds (we will refer to these as class I). Gains from units purchased on or before 3Y are short-term gains and taxed as per slab, and gains from older units are taxed at 20% with indexation (no change in this).
The big change: Funds holding less than or equal to 35% equity will be taxed as per slab regardless of the age of the unit. Let us call these class II non-equity funds. This will only apply to fresh purchases made from 1st April 2023.

This is an awful move, as investors taking on capital market risk in the bond market will no longer be rewarded for it.

This will also affect all international equity funds and gold funds.

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FAQs

Debt mutual funds to be taxed as per slab from 1st April 2023!? ›

Taxation Of Debt Mutual Funds After 1 April 2023

What is the new debt fund tax rule? ›

Taxability of Debt Mutual Funds After 1st April 2023

As per the latest amendment in the taxability of debt, specified mutual funds can no longer avail of the benefit of indexation while calculating Long-term capital gains. So, debt mutual funds will be taxed at applicable slab rates.

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What is the tax rate for debt oriented mutual funds? ›

Taxation on Hybrid Funds

Equity-focused Hybrid Funds attract a 10% tax on LTCG exceeding Rs 1 lakh without indexation and 15% on STCG. Debt-focused Hybrid Funds attract a 20% LTCG Tax with indexation benefits and STCG as per the investor's Income Tax slab.

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How to show debt mutual fund in income tax return? ›

Dividend Income - Whether the dividend is received from a debt mutual fund or an equity mutual fund, it is considered as the investor's income and added to his total income under the head income from other sources. A salaried individual can disclose such income in ITR-1 under 'Income from other sources.

How much mutual fund is tax free? ›

You are allowed to invest up to Rs 1.5 lakh in tax-saving funds. You will get a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. a.

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What is the new taxation on mutual funds? ›

Regardless of your income tax bracket, these gains are taxed at a flat rate of 15%. When you sell your equity fund units after holding them for at least a year, you realize long-term capital gains. These capital gains are tax-free, up to Rs 1 lakh per year.

How is debt fund tax calculated? ›

According to the tax laws, if you hold a debt fund for up to 3 years, then you have to pay Short Term Capital Gains (STCG) tax on your profits at the rate of 20%. However, if you hold it for longer than 3 years, then the profits are considered as Long Term Capital Gains (LTCG) and taxed at 10%.

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How to avoid tax on mutual funds? ›

Systematic Withdrawal Plan (SWP): Set up an SWP to automatically redeem your mutual fund units regularly. By keeping withdrawals below Rs. 1 lakh per year, you may avoid LTCG tax altogether.

Find Out More ›

Are mutual funds taxed as capital gains or ordinary income? ›

If you receive a distribution from a fund that results from the sale of a security the fund held for only six months, that distribution is taxed at your ordinary-income tax rate. If the fund held the security for several years, however, then those funds are subject to the capital gains tax instead.

What is the income tax on short term capital gain on debt mutual fund? ›

A tax rate of 15% is applicable on the returns. But for debt fund, the period is up to 36 months. The tax rate on STCG on debt funds is as per the income tax slab of the investor. The tax rate of short-term capital gains will be 20% if the investor falls in 20% tax slab rate.

How to calculate indexation on debt funds? ›

For arriving at the adjusted cost of acquisition of the Debt Fund units, we divide the Cost Inflation Index of the year in which the units are sold by the Cost Inflation Index of the Year in which these units were acquired and then multiply the figure by the actual cost at which the units were purchased.

Get More Info ›

What are the returns on debt mutual funds? ›

Best Performing Debt Mutual Funds

Scheme Name	Expense Ratio	1Y Return
Nippon India Corporate Bond Fund #1 of 15 in Corporate Bond	0.35%	7.14% p.a.
ICICI Prudential Medium Term Bond Fund #1 of 12 in Medium Duration	0.74%	7.16% p.a.
ICICI Prudential Ultra Short Term Fund #1 of 18 in Ultra Short Duration	0.39%	7.5% p.a.

7 more rows

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Are debt oriented mutual funds taxable? ›

Starting 1st April 2023, the debt funds will no longer receive indexation benefit and deemed to be short-term capital gain. Therefore, the gains from debt funds will now be added to your taxable income and taxed at the slab rate.

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How to check if a mutual fund is a tax saver? ›

An ELSS is a mutual fund class that offers tax deductions under Section 80C of the Income Tax Act, 1961. To check if a fund is an ELSS or not, you need to check for its details on the fund house's website. If you are investing via a third party, the same information will also be available on their website.

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Are mutual funds taxed if not sold? ›

Bottom line. Taxes on mutual funds can be complicated because you can be taxed on dividends and the fund's gains even before you've sold your shares. Of course, you'll also be taxed on any gain in the fund's value when you decide to sell.

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What is the new rule for fund of funds? ›

If the private fund is a fund of funds, then the quarterly statement must be distributed to the private fund investors within 75 days after the first three fiscal quarter ends of each fiscal year and 120 days after the fiscal year end of the private fund.

Get More Info Here ›

What is the 500 000 capital gain exclusion? ›

You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly.

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Will I be taxed on debt relief? ›

Debt Settlement Tax Consequences

The IRS considers any debt cancelation of $600 or more as additional income — and taxable — even if you didn't actually receive any money.

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What is the pre tax cost of debt for a new issue of debt? ›

Answer and Explanation: The pretax cost of debt: a. is based on the current yield to maturity of the firm's outstanding bonds. This is the rate of return a company pays to the holders of issued debt. When debt consists of issued bonds, then the cost of debt is the yield to maturity that bonds currently have.

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